Court File and Parties

COURT FILE NO.: 15-0727 DATE: 2016-06-10 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Hilco Industrial Acquisition Canada ULC Plaintiff/Moving Party – and – Engreen Maitland Inc. Defendant/Responding Party – and – Engreen Maitland Inc. Plaintiff by Counterclaim Hilco Industrial Acquisition Canada ULC, Hilco Global, Hilco Industrial LLC, Hilco Industrial Canada ULC, Hilco Asset Sales Canada Corp., Baker Rigging & Mechanical Inc. and AuctionReady Inc. Defendants to the Counterclaim

COUNSEL:

Tom Friedland, for the Plaintiff/Moving Party Michael B. Miller, for the Defendant/Responding Party Michael B. Miller, for the Plaintiff by Counterclaim Tom Friedland, for the Defendants by Counterclaim No one appearing for any other parties

HEARD: March 8, 2016

REASONS FOR COSTS

SHEARD J.

Overview

[1] On March 8, 2016 I heard two motions. The first was a motion brought by then counsel for Engreen Maitland Inc. (“Engreen”) to be removed as counsel of record. The second was brought by Hilco Industrial Acquisition Canada ULC (“Hilco”) to enforce the Interim Minutes of Settlement (“the Minutes”) between Hilco and Engreen.

[2] I granted the first motion, which was not opposed by Anthony Guido, President of Engreen. Mr. Guido was then granted leave to argue the second motion on behalf of Engreen. I granted the motion brought by Hilco and made an order enforcing the Minutes reached between Hilco and Engreen.

[3] This endorsement deals with the costs of the Hilco motion.

Background

[4] This litigation arises from the sale by Engreen of certain pieces of industrial equipment found in the DuPont factory which is located in Maitland Ontario. Engreen purchased the DuPont factory but did not need all of its equipment. Engreen sold certain pieces of the equipment to Hilco. The equipment was located in and/or affixed to the factory. As is common in this business, Hilco then held an auction at the DuPont factory and resold its purchased equipment to third parties. The estimated value of the assets and equipment was USD $1,331,748.

[5] As explained in my Reasons for Decision dated March 15, 2016, in the fall of 2015 Engreen refused to allow Hilco or its third party buyers access to the DuPont factory to remove the purchased equipment.

[6] Hilco issued a claim in November 2015 and served an injunction motion, returnable November 16, 2015. On consent, the motion was adjourned and on December 1, 2015 the Minutes were entered into by Hilco and Engreen. Mr. Guido signed on behalf of Engreen.

[7] There were certain steps that had to be taken in order to implement the Minutes. Again, those are detailed in my Reasons for Decision. On February 11, 2016 communications between Mr. Guido and the lawyers for Hilco made it clear that Engreen was not going to honour the Minutes. As a result, Hilco brought its motion to enforce the Minutes.

Materials on the Motion

[8] The materials before me on the Hilco motion included Hilco’s Motion Record which was comprised of the Notice of Motion, the affidavit of Brent Bonham sworn February 17, 2016 and 36 exhibits to the affidavit. The record was 294 pages in length. Hilco also filed a factum and a book of authorities. At my request, at the hearing of the motion Hilco filed coloured photocopies of 80 photographs taken of the purchased equipment.

[9] Also before me on the Hilco motion were the original motion materials filed by Hilco dated November 13, 2015, as well as Hilco’s Supplementary Motion Record dated November 30, 2015.

[10] Mr. Guido filed a responding record on behalf of Engreen. It included his affidavit sworn March 8, 2016, with 16 exhibits; another affidavit of Mr. Guido, sworn November 26, 2015 with seven exhibits; the affidavit of Jennifer Koyll, sworn November 26, 2015 with five exhibits, and the affidavit of George Wilson, sworn November 26, 2015 with six exhibits. The Engreen record totaled 276 pages.

Length of the Hilco Motion

[11] The Hilco motion and the motion brought by Engreen’s counsel to be removed were two of a number of matters on the motions list that day. The removal motion was reached before lunch but was interrupted by the other matters on the list and by my need to consider the Engreen materials filed by Mr. Guido that day. My notes indicate that the Hilco motion resumed at 3:15 p.m. and submissions concluded at 5:40 p.m.

[12] For the reasons set out in my Reasons for Decision, I granted the Hilco motion and concluded that both Mr. Guido and Engreen acted in bad faith. Among other things, I concluded that Mr. Guido and Engreen repudiated the Minutes in the face of good faith negotiation and efforts taken by Hilco to facilitate its obligations pursuant to the Minutes and to resolve the issues between the parties.

[13] By agreeing to negotiate and settle its injunction motion originally brought in November 2014, Hilco gave up the advantage of an early judicial determination of the issues between the parties. Furthermore, in order to resolve the Hilco Motion with Engreen, in the Minutes Hilco agreed to a gratuitous payment to Engreen of USD $100,000. This payment was to be allocated USD $40,000 to Engreen’s lawyers and USD $60,000.00 to Engreen. Despite Engreen’s repudiation of the Minutes, at the hearing of the motion, Hilco was still prepared to abide by its terms, which included this gratuitous payment.

Positions of the Parties

[14] On the motion, Hilco asked that any costs awarded to it be deducted from the USD $60,000.00 payable to Engreen as per the Minutes. I did not make that order. I invited the parties to make written submissions regarding costs within 30 days of the date of the Reasons. Those submissions were received from counsel for Hilco and, newly appointed counsel for Engreen.

[15] In its cost submissions, Hilco seeks costs of the Hilco motion on a full indemnity basis. It argues that costs on that basis are warranted in this case because of the conduct of Engreen and or Mr. Guido. Hilco refers to the learned text of Mark M. Orkin, The Law of Costs, 2nd ed, Volume I (Toronto: Thomson Reuters, 2015) in which the author opines that full indemnity costs are warranted when there is a “clear finding of reprehensible conduct on the part of the party against whom the costs award is made”.

[16] Engreen responds by submitting that the circumstances in which elevated costs are warranted as those “where there has been reprehensible, scandalous or outrageous conduct on the part of one of the parties.” (*Davies v. Clarington (Municipality)*, 2009 ONCA 722 quoting McLachlin, J. in *Young v. Young*, [1993] 4 S.C.R. 3, p. 134). Davies also quotes Justice Abella J. A. (as she then was) in *McBride Metal Fabricating Corp. v. H & W Sales Co.*, (2002), 59 O.R. (3d) 97 (C.A.), at para. 39 in which she explained the notion of “conduct of a reprehensible nature” as conduct in which there were “specific acts or a series of acts that clearly indicated an abuse of process, thus warranting costs as a form of chastisement.”

[17] Counsel for Engreen submits that my Reasons for Decision do not state that Engreen had engaged in conduct “so outrageous and scandalous” that it amounted to an abuse of process and worthy of chastisement. Further, that, absent a clear finding of reprehensible conduct, elevated costs should not be awarded.

[18] Counsel for Engreen submits that costs should be awarded on a partial indemnity basis.

Factors

[19] The factors to be considered when fixing costs are set out in rule 57 of the Rules of Civil Procedure, RRO 1990, Reg 194 and include, in addition to success, the amount claimed and recovered; the complexity and importance of the matter; unreasonable conduct of any party which unduly lengthened the proceeding; scale of costs and any offer to settle; the principle of indemnity; hourly rates claimed in relation to the partial indemnity rate set out in the Information to the Profession (found in the preamble to rule 57 of the Rules); the time spent and the principle of proportionality; and the amount that a losing party would reasonably expect to pay.

Success

[20] In this case Hilco was entirely successful on the motion. Further, there was a finding that Engreen and its principal, Mr. Guido, acted in bad faith.

Amount Involved

[21] The amount involved in this aspect of the litigation is USD $1,331,748. In view of the Canadian/American exchange rate, that amount would be considerably higher when converted to Canadian dollars.

Complexity and Importance

[22] Notwithstanding the voluminous evidence before me on the motion, the issues on the motion were not overly complicated: the parties resolved a pending motion by way of the Minutes and before the settlement could be implemented, Engreen repudiated the agreement.

[23] Resolving this dispute was important to Hilco both from a financial perspective and from a reputational perspective: it had resold the subject equipment to third parties who were threatening to sue Hilco, whose reputation was adversely affected within its business community by its failure to deliver the goods that it had sold.

[24] The enforcement of settlements is also important to the administration of justice. When parties negotiate and settle an outstanding motion, they are entitled to have confidence that the court will enforce their settlement. The settlement saved scarce judicial and other resources that would otherwise have been directed toward the hearing and adjudication of the motion.

Unreasonable Conduct of any Party

[25] As set out in my Reasons for Decision, I found that both Engreen and Mr. Guido acted in bad faith. Also, having heard both motions that day, I am aware that Engreen waited until the 11th hour to inform Hilco that its relationship with its own lawyer had broken down. Hilco was put to some expense in obtaining a copy of the motion record of Engreen’s solicitor’s removal motion which was followed by Hilco’s counsel communicating with the Court to request that the Hilco motion proceed, notwithstanding the pending removal motion.

[26] In part, as a result of the timing of the removal motion brought by Engreen’s then counsel, which had to be heard and decided before the Hilco motion and, in part, by reason of the late delivery of Engreen’s responding materials, delivered on the day of the Hilco motion, the Hilco motion could not proceed until mid-afternoon. That meant that counsel for Hilco spent a full day in court.

Scale of Costs and Offers to Settle

[27] In its costs submissions, and somewhat ironically, counsel for Engreen points out that Hilco made no offer to settle its motion to enforce the Minutes. In the circumstances of this case, the absence of an offer to settle from Hilco is understandable and I do not consider that factor relevant or applicable to a determination of costs in this case.

[28] As set out above, Hilco seeks costs on a full indemnity basis and Engreen submits that costs should be awarded on a partial indemnity basis. Engreen further submits that Hilco has failed to provide accounts or dockets to support the amount claimed and that the amount claimed is excessive.

[29] Hilco was seeking full indemnity costs as set out in a bill of costs totaling $55,846.53. Even if the full seven-hour court day is considered, the amount claimed is astonishing.

[30] Hilco’s Bill of Costs breaks out the time and fees into seven categories:

1. To draft and deliver correspondence related to enforcement of the minutes of settlement: $4,036.00;
2. To draft, serve, and file the motion record: $12,234.00;
3. To research, draft, serve, and file the factum and book of authorities: $11,648.00;
4. To prepare for court attendance: $8,060.00;
5. To prepare the cost outline for the hearing (which I have no recollection of receiving): $1,780.00;
6. Preparation of costs submissions (these were to be limited to three pages in length plus a bill of costs): $5,110.00; and
7. Counsel fee for court appearance: $7,119.00.

Hourly Rates, Time Spent and Proportionality

[31] After including disbursements of $286.69 and HST, the above amounts total $55,846.53 on a full indemnity basis.

[32] The hourly rates provide a significant explanation for the amount of fees. The full indemnity hourly rate of Tom Friedland, called in 1991, is $900.00. Charlie Pettypiece’s hourly rate is $225.00. He was called in 2014. The costs rates in the Information for the Profession were set in 2005. They were intended as guidelines for maximum rates when fixing partial indemnity costs. They prescribe a maximum hourly rate of $225.00 for a lawyer under 10 years and $350.00 for a lawyer with 20 years and over years of experience. They are guidelines and must now be adjusted for inflation. Using the Bank of Canada inflation calculator those maximum hourly rates would be increased by 20.36% to $270.81 and $421.26 respectively. However fixing costs in this case cannot be achieved merely by adjusting the hourly rates.

[33] While there is no doubt that the outcome of this motion was extremely important to Hilco, the amount sought in costs is out of proportion to the complexity of the motion and to the materials that were filed on the motion. The time spent by Mr. Friedland related to the enforcement of the Minutes and to the motion, itself including the costs submissions and court appearance, total 34 hours for Mr. Friedland and 42.2 for Mr. Pettypiece. Multiplying the adjusted maximum hourly rates to those hours: $421.26 x 34 = $14,322.84 and $270.81 x 42.2 $11,428.18 for a total of $25,751.00.

[34] Had Hilco claimed only Mr. Friedland’s time, while it was on the high side, it was not excessive. However, Hilco also seeks payment for time spent by a second lawyer and, when added to Mr. Friedland’s time, the total hours incurred become disproportionate when considering the complexity of the issues and the nature of the proceeding: in the main, the affidavits set out a chronology of events and emails exchanged. They were not factually complex. Similarly, the issues were not complicated.

[35] Even if I were to conclude, which I do, that the behaviour of Engreen and Mr. Guido warrants chastisement, even applying the partial indemnity rate to the hours claimed, the amount of costs sought is disproportionate and also exceeds the amount that could reasonably be awarded.

[36] The amount being sought is far beyond the amount which Engreen and or Mr. Guido could have expected to be ordered to pay. Rather, in fixing costs the Court must consider all relevant factors and determine an amount that is fair and reasonable. This principle of proportionality governs all cost awards and includes taking into account the amount that the unsuccessful party would have reasonably expected to pay.

Amount the Unsuccessful Party would Reasonably Expect to Pay

[37] In its submissions, Engreen argues that it would have expected to pay partial indemnity costs for a half-day motion of between $3,000 and $7,500. In fact, for the reasons outlined above, I consider this motion to have consumed a full day. Were I to accept the figures proposed by Engreen, it could be argued that costs of a full-day motion might reasonably be double that amount. That might put the range of the costs award at between $6,000 and $15,000 on a partial indemnity scale.

[38] I do not accept that costs should be awarded against Engreen on a full indemnity basis nor does the application of maximum partial indemnity rates multiplied by the time spent achieve an appropriate result. I have determined that the conduct of Mr. Guido and Engreen merits some chastisement and find that he would have expected any court to reach that conclusion given his conduct.

Disposition

[39] For the reasons set out above Engreen is ordered to pay costs to Hilco fixed in the amount of $20,000 plus HST of $2,600.00 plus the disbursements as set out in Hilco’s Bill of Costs in the amount of $286.69 inclusive of HST for a total payment of $22,886.69.

Madam Justice Liza Sheard

Released: June 10, 2016